Caesars Entertainment (NASDAQ: CZR) is the second-largest operator on the Las Vegas Strip, but the company’s extensive portfolio of regional casinos could be fuel for more upside in the stock.
That’s the take of JPMorgan analyst Joseph Greff. In a new note to clients, Greff reiterated an “overweight” rating on the Harrah’s operator while lifting his price target to $71 from $70. That implies upside of 26% from Tuesday’s close. Caesars stock has been on a torrid pace of late, jumping 12.21% over the past month. The gaming company delivers second-quarter results after the close of US markets on August 1.
Investor sentiment is, in our view, fairly negative, given concerns about the health of the low-end consumer, eroding of pandemic excess savings, and likely mixed 2Q23 regional performance from some of CZR’s regional peers,” noted Greff.
Still, the analyst raised his second-quarter cash flow estimate attributable to Caesars’ regional properties to $504 million, up from a prior forecast of $496 million. Caesars has a broad regional casino portfolio including a new venue in Virginia, an upcoming property in Nebraska, and established gaming facilities in Colorado, Illinois, Indiana, and Iowa, among others.
Bullish on Caesars Las Vegas, Too
As the operator of Caesars Palace and other iconic Strip venues, such as the Flamingo, Harrah’s, and the Horseshoe, Caesars is frequently associated with Las Vegas.
Greff estimates that the company will generate $513 million in cash flow from the Strip in the second quarter. While that’s slightly below the consensus forecast of $515 million, the JPMorgan analyst believes “there is more upside than downside to this forecast,” citing recent strength in Las Vegas gaming results and hotel occupancy levels.
For investors, that’s crucial because roughly half of Caesars’ equity value is derived from its Las Vegas operations. That could work in their favor with the start of football season looming and other marquee events coming to Sin City in the months ahead.
Things are expected to perk up later this year with significant assistance from the Las Vegas Grand Prix in November. Some analysts already forecast the event could be a $25 million boon to Caesars’ Las Vegas properties. That figure doesn’t include benefits to the operator’s Strip casinos accrued over the race weekend.
Caesars Digital Unit Could Be Next Catalyst
To date, Caesars’ online gaming unit, which includes Caesars Sportsbook, hasn’t been much of a factor in terms of share price performance. Nor has it generated a profit. However, it’s stemming losses in significant fashion and the business could soon be more of a factor in the Caesars equity equation.
An underappreciated aspect of CZR’s digital strategy is its July launch (later this month) of its rebranded and enhanced iCasino app, with improved branded content on slots and live-dealer table games, with the goal to achieve higher iCasino market share and incremental earnings before interest, taxes, depreciation, and amortization (EBITDA) gains,” concluded Greff.
The analyst estimates the digital business could provide a $7 million return on investment in the current quarter.
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